The elongation of the pharmaceutical supply chain is an important influence on the current and future state of outsourcing. To keep pace with changing requirements of sponsor companies, contract manufacturing organizations (CMOs) have broadened geographically to create a global footprint. Several Asia-based CMOs recently invested in manufacturing and development operations in North America and Western Europe, and select Western CMOs have similarly strengthened their positions in Asia. To gain a perspective on the critical issues, challenges, and factors affecting outsourcing, Pharmaceutical Technology conducted a roundtable of leading CMOs that have pursued this strategy in primary (i.e., intermediates and active pharmaceutical ingredients) and secondary (i.e., finished drug product) manufacturing and development.

PharmTech»
CMOs in Asia have generally been perceived as being able to offer lower costs compared with their counterparts in North America and Europe, but rising costs for labor, transportation, and energy have eroded some of this differential. What cost pressures have arisen in the market and what has been their effect on the competitive dynamics of outsourcing to Asia?

Figure 1

»Mukherjee (Dr. Reddy's):
The custom-manufacturing landscape has become extremely competitive around the world. The cost differential between India and the West still exists to an extent, but the West has become far more competitive with respect to price by embracing process and manufacturing efficiency, driving the cost out of their production. They are accomplishing this by utilizing a global network of suppliers for their materials as well as achieving operational efficiencies. Today, the selection of a supplier is no longer driven by pricing, but rather by the total service offering. Service providers from Asia need to demonstrate their technical sophistication and manufacturing efficiency in a way that was not required in the past. Cost is no longer the single competitive advantage for any CMO. To be successful, cost along with strong quality, safety, health, environmental, sourcing, and supply-chain programs must be evident.

»Roullard (SAFC):
Adam Smith's theory of the "invisible hand" is actively at work between the Western and Asia marketplaces. Costs have definitely increased in Asia, driven by many factors, the most significant being an increase in labor costs for chemists and engineers. Labor costs in Asia continue to be lower than those of Western suppliers, but the gap is closing due to shifting demand, competition for resources, and the spread of relative wealth as these economies develop. The existing differential has customers setting explicit strategies for utilization of Asian outsourcing partners for projects requiring commoditized capability. And, those in the West with common technologies, common quality, and common supply-chain capabilities are feeling the most competitive pressure. However, those companies that are able to provide unique technologies or provide supply-chain security for critical raw materials are able to differentiate to an extent that ensures, at worst, mid-term viability as a value-added supplier.